Venezuela: Government Spent More Money but Built Fewer Houses

Caracas, 16 May 2005 | José Luis Farías, assemblyman for the Solidaridad party, assured that public spending on housing in the construction sector is not directly proportional to the number of units completed. In 2003, the Executive Branch authorized the record amount of Bs 1.4 trillion and on its own built just 4,668 new homes, the lowest number since 1999. Thus, more than Bs 300 million was spent on each real property unit.

The goal set by the Government this year awakened suspicions among leaders of the opposition. The doubt was based on a simple mathematical calculation which revealed to them the Executive’s intention of producing in one year what had been impossible to do in an entire five-year term. President Chávez’s commitment during the coming months is to provide over 120,000 dwellings and the promise for next year reaches an additional 200,000.

Well then, nobody would cast doubts on the good intentions of the chief executive if it were not known that since 1999 only 111,803 new homes have been built, according to records at the Venezuelan Chamber of Construction.

In any case, the opposition not only questions the Government’s productive capabilities in this matter, but also begins to question the management of public spending in the housing sector, as soon as it compares the amount spent with the number of units completed.

The observation was made by José Luis Farías, assemblyman for the Solidaridad party, who found that during the last six years public spending was never directly proportional to the housing inventory, because, as the Government increased spending in the construction sector, the number of newer dwellings actually diminished.

Even more, the parliamentarian’s study revealed that when public spending on housing was at its highest, the Government’s productivity reached its lowest level. And vice versa, when spending in that sector was lower, this endeavor reached its highest record.

Thus it is recorded at the Integrated System for Social Indicators for Venezuela: In 2003 the Executive spent Bs 1.4 trillion and, on its own, produced 4,668 real property units. With participation from the private sector included, the figure reached 8,811 units.

The year with the second greatest spending was 2000, when Bs 1.3 trillion was allocated to the construction sector and at that time they managed to construct a total of at least 23,152 new homes. On the other hand, during 1999 they managed to produce more than 31,000 dwellings and at that time the Government had available only Bs 459 billion, the lowest figure in the last 6 years.

Based on these numbers, Farías tries to explain the inconsistency between pubic spending and the total number of dwellings completed. With regard to which, he expounds the following scenario: if the Government spent Bs 1.4 trillion and the figure for completed dwellings reached 8,811, then he concludes that each one cost at least Bs 160 million. But after scrutinizing the figure and discovering that only 4,668 units are attributable to the public sector, it is revealed that the State spent more than Bs 300 million per single unit.

This thesis of Farías’s would be correct only if the Government had applied the entire budget toward completed units and had excluded the total cost entailed by the completed dwellings.

In this sense, the figure of Bs 300 million per property unit would turn out to be much too compromising for the Executive, more so when we know that the State does not assume the elevated cost of land or of construction materials.

According to data from the firm Miguel Chacón & Asociados, the square meter in 2003 was worth Bs 749,849.

One would have to figure out the total in order to know what kind of dwelling the Executive could acquire with this amount. “The square meter at that time did not surpass one million bolívares. That means that with that money one could purchase a penthouse larger than 200 square meters (2,153 square feet) or even 2 apartments in the eastern [the nice] part of Caracas,” affirmed Farías.

Changeable Prices

The parliamentarian also compared the relationship between public spending and the number of dwellings completed, but this time he took into account the real price [adjusted for inflation] using the year 2000 as a baseline.

It assumes the data exclude inflation and that should, in theory, imply a lesser variation in the amounts from year to year.

“We tried to make a comparison between the nominal price and the real price. In the first case, the amount will always increase because inflation is taken into consideration. In using the year 2000 as a monetary reference, the numbers were expected to be more or less equal, or with few variations," he explained.

Nevertheless, the assemblyman’s analysis showed that the expenditure amounts register significant jumps from one period to the next.

It is enough to observe how the expenditure drops from Bs 1.3 trillion in 2000 to Bs 782 billion the following year, and from then on it contracts to Bs 648 billion, to then return to that of 2001.

Working with Ministry of Planning and Development data, Farías further revealed that during four years the annual rate of growth for public spending on housing was negative, with the exception of 2000 and 2003, when it grew modestly. "This index places it at less than 1% of the GDP. How can they say that they want to solve this problem when they do not allocate sufficient resources and to top things off they steal from what little is allocated?" he questioned.

He also asked himself why with such a favorable price for petroleum, public spending in this sector continues being so low.

Even more, he reveals that the drop in public spending for housing has been so severe that its growth index for 2004 was well below that of 1995.

According to his calculations based on a constant 2000 price, Chávez spent in 2004 a little over Bs 539 billion, while Rafael Caldera allocated more than Bs 542 billion at the beginning of his administration in 1995.

In any case, the Government has no choice but to revert to the negative trend it has maintained the last six years and, this time, its determination needs to be firmer, now that it has made a public commitment to solve the deficit within a term of no less than 10 years.

To those ends it must demonstrate efficiency in the administration of resources; since, to do otherwise, its promise of building 100,000 dwellings per year would mean an uphill battle. This year, the Government has available a record Bs 7 trillion, from among the Fund for Public Sector Contributions, the Housing Mutual Fund, the mortgage portfolio, and the PDVSA fiduciary trusts. This sum total should allow it to construct 120,000 dwellings.

In 2003 the Government had available Bs 1.4 trillion and only managed to build 4,668 units.

Now that it has available an amount of resources 5 times greater, it has the task of exceeding a goal 25 times greater.

The problem is that 7 months before year's end only 5,000 dwellings have been completed.

Proliferation of Shanties

The report presented by José Luis Farías, assemblyman for the Solidaridad party, revealed that the "ranchos" or dwellings constructed with discarded materials are the only kind of real property that has multiplied during the last 6 years.

He assured that between 1999 and 2003 the percentage of dwellings that were “ranchos” went from 5.5% to 9% according to figures registered with the Integrated System for Social Indicators for Venezuela.

“With the misappropriation of resources destined for the housing sector, the Government has irresponsibly encouraged the proliferation of shanties along with all the negative implications of this pathetic process," the document points out.

Likewise, the parliamentarian stated that the percentage of persons residing in other kinds of dwellings such as apartments decreased from 13.10% in 1999 to 11.30% in 2003. The opposite effect occurred for those living in individual houses, but by a much lesser proportion.